Troy Jensen is the Founder & Chief Executive Officer of nxVenture Capital Ltd, a New York City based private investment management firm.

Feb 24, 2016

Why Isn’t Anyone Calling Out Stoppelman?

I don’t think talia jane is out of bounds at all in calling out the troubled tech company Yelp and their underperforming CEO Jeremy Stoppelman. And I’m a 40 year old serial entrepreneur who has grinded harder than 98% of the idiots commenting and writing hostile opinion posts — “started from the bottom, now we here,” to borrow from Drake. So, I come from nada. Unlike young Mr. Stoppelman, my father was not a securities attorney, and I was not born in Arlington, VA, an upscale suburb of Washington DC. Today, I’m the Founder and CEO of a private investment management firm (nxVenture Capital Ltd) with several billion in assets under management. I’m worth more than today’s humbled former tech titan Jeremy Stoppelman, who is watching a decent chunk of his net get blown out with the inevitable fallout of a big miss on 2015 earnings last week, along with his CFO suddenly bailing and then my girl talia jane finally calling out this blowhard for what he is.

Yelp CEO Jeremy Stoppelman with girlfriend at a Dior Party held for his birthday in March 2015. I wonder if he knew then his company’s fundamentals were crumbling?

OK, technology, to be honest. But, second place is Human Capital — we pay 25%+ more than even the Bulge Bracket Wall Street banks do for comp positions. BUT…that is not just limited to CFO’s, to proprietary traders, or to fund managers. No, my Administrative Assistant gets paid FAR more than the average $84,000 a Wall Street firm with $2.5 billion plus in AUM (assets under management) pays out. In fact, I pay her nearly FOUR TIMES that figure.

My capital reinvestment in my staff absolutely eats into my net profits annually, like you in Silicon Valley could never understand — well, because like Yelp, most don’t make quarterly profits. Like, EVER. You see, I was in Digital Media for the first 12 years of my career. I lived in San Francisco, and I have launched venture-backed startups.

Different world here in the Financial Center of the Universe. We have to actually make profits here in the most ruthless industry environment any Silicon Valley CEO could possibly fathom. So why do I continually, aggressively pay my staff, from reception and the drivers in our sedan pool all the way up to senior management, consistently a minimum 25% higher compensation rate than even my much, much larger competitors?

Because I can recruit incredibly qualified talent, and I then retain them at a rate unmatched in my competitive set. Also, I go to WAR with my people everyday — my staff now numbers over 100. The majority are based in NYC, which is indeed the only city in the U.S. that beats out San Francisco in total cost-of-living. I don’t want my receptionist having to borrow $6 from a CVS employee to catch the bloody F-Train to Wall Street station (we pay for every staff member’s parking…in Manhattan’s Financial District, that is a $395 monthly bill we foot for everyone). These are my people…my warriors.

Yelp went public what, in Q1 2012 if memory serves…yup, my Bloomberg Terminal says March 2, 2012, Yelp debuted at $15 a share. That raised the company a cool $107.25 million, at a $898.1 million valuation. My digital technology prop trading desk took their billion in trading capital and has invested $0 in Yelp. Now, prop traders typically are short term traders. But our long-term equity traders in my firm’s private equity group bought $0 of Yelp shares. Yelp closed at $18.91 Tuesday (NYSE: YELP). On March 4, 2014, Yelp closed at $98.04, the stock’s all-time high.

It’s been an ugly ride down from there. Yelp was called out in a Los Angeles Times article as “a racket” with a business model based on “extortion.” The Canadians are having the same problems, as detailed in this CBC Business article again saying Yelp is bullying small businesses into paying for advertising (which is where nearly all of Yelp’s gross revenue is derived from). Even the U.S. Federal Trade Commission (FTC) was reviewing Yelp complaints in 2014 (Yelp has claimed the FTC is no longer conducting its inquiry into the extortion complaints it has received against it; the FTC will not officially comment).

So, here is a company that has grown revenue from $12.7 million in 2008 to $549.7 million in 2015, but since Yelp’s inception in 2004, it has only posted a net earnings profit in one year — 2014, when Yelp recorded a GAAP net income of $36 million (pre-tax net income was $11 million; $25 million of their GAAP net income was actually attributed to deferred tax credits).

The company’s business model — and more specifically, Yelp’s monetization model — simply does not work over the long-term. They have huge issues with sales staff turnover, and are spending more every year as a percentage of gross revenue on sales and marketing expenses. Their 2015 Earnings Report was a disaster.Despite increasing revenue to $549.7 million in 2015 from $377.5 million, Yelp posted a surprise loss of $32.9 million in GAAP net earnings for 2015 — a substantial setback. The company’s CFO announced he was resigning three days before the earnings call. The Wall Street Journal ran an article, “Yelp Needs Some Help.” And Bloomberg ran an article that pronounced Yelp was potentially being targeted by activist investors, and they company may be taken private at this far lower valuation than just last July ($3 billion in July; $1.1 billion today and falling), when Yelp was working with investment banks on a potential sale.

Yelps shares have lost half their value this year alone….

So, when talia jane calls out Yelp CEO Jeremy Stoppelman on the treatment of their staff, I think there are a lot of very reputable sources backing her up. And as far as Stoppelman, I wouldn’t let him run my household staff, let alone a company. How has Yelp stayed afloat despite running a cumulative net loss of an estimated $120 million over the past 11 years of operations? Equity raises — first in the form of multiple large venture capital funding rounds, and then the IPO (initial public offering) in 2012, as well as a follow-on offering (the company issues more shares of stock to public investors; as Yelp did, this is typically done when the share price is trading at a ridiculously high price…their follow-on offering raised $291.7 million in 2013).

The markets are seeing through Yelp, the company’s CEO, and its unsustainable business model, especially in light of the direct competition being squarely aimed at Yelp by both Google and Facebook. Yelp cannot survive that onslaught.

Is talia jane the typical millennial, bitching and moaning about life and Yelp in particular? While generational stereotypes are fine for demographic research and the like, only the ignorant throw every 25 year old into the same behavioral bucket. Half of my staff is under 30, make more than $350,000 annually, and work a minimum of 60 hours per week. They are passionate to the point of obsession (like their CEO, namely myself!) about their success and the firm’s success. They don’t make excuses, and many come from hardscrabble backgrounds (I hire PSH degrees — Poor, Smart and Hungry). I don’t think her complaints against the company’s compensation in the second most expensive market in the wealthiest nation in the world are unfounded — in fact, there are literally dozens and dozens of public complaints similar in nature. The company itself has stated several times, including again in last week’s earnings call, that it had made “large errors” in terms of compensation and management of their sales staff — perhaps they themselves are referring to talia jane’s division? The bottom line is it is quite obvious Yelp is not a great place to work at that level, and if the compensation figures I am hearing are accurate, then it is without any wonder their employee retention rate was extremely low.

As for everyone telling her to move from San Francisco, or take on three night jobs waitressing, I think I am hearing a lot of hypocrisy and jealousy. The Haters come out when you write such a scathing public rebuke of a high-profile CEO and it gets traction. I am looking at profiles and seeing a lot of negative commenters are not from one of the metro markets that “matter” — be it technology, finance, culture, the arts….anything. Los Angeles, New York City, San Francisco…these are cities that set the tone in so many ways for the nation and the world. It takes enormous courage to come to Manhattan and pursue your dreams; for me at that age it was Los Angeles and San Francisco. All three are brutal in so many ways, and all three have the highest indexed cost-of-living in the United States.

It’s so damn easy to say, “move!” when you are replying on Medium from your bloody suburban track home outside Dallas, or Phoenix, or Indianapolis, or Kansas City. Good lord, I bought a 6,230 SF home in Ponte Vedra Beach, Florida (on the beach, the home sits on a property just over an acre in size) for the same price a one-bedroom, one bath, 855 SF condo cost here in Manhattan. A million dollars in godforsaken Cleveland’s real estate market goes one hell of a lot further than in Manhattan or San Francisco.

I am an employer in New York City, and I recognize that. I also am the CEO of a privately-held investment management firm with over 100 employees, four offices globally, and since launching in 2010 has had a quarterly GAAP net income loss exactly ZERO times in that span. Our profit in my firm’s Fiscal Year 2015 (September 1, 2014 — August 31, 2015) was more than Yelp’s entire 2015 gross revenue of $550 million. They have over 3,000 employees and spend enormous amounts on sales and marketing. Yet despite that, their mobile adoption and unique user growth are slowing on a percentage basis YoY, which is extremely negative when projecting their business model monetization outlook going forward)…I had 89 employees in FY 2015, and because we invest and manage only the firm’s investment capital, we have no sales or marketing expenses. We do not solicit nor manage outside investor capital.

My bottom line is do the research before attacking, and see if the author has a point in attacking the CEO. Would I have taken that strategic route, publicly blasting the CEO of the company I work for? Probably not — I’ve never actually worked for anyone, but I know as the CEO of several companies I run a very tight ship, and heads would be chopped if someone on my staff directed a public tirade against me online, such as Talia Jane did.

But Talia’s Medium post could not actually be strategically more perfect in its timing in terms of the company’s already extremely tarnished reputation…I mean, it's as if my team paid her to pound Yelp some more so my prop trading desk could short the stock. The company was days from a huge earnings miss, their Chief Financial Officer suddenly stepping down, and multiple downgrades on a stock now trading at all-time lows from the majority of analysts.

Yelp CEO Jeremy Stoppelman working his ass off in March 2015 at a Dior Party held for his birthday. This would be the same time period that Yelp’s sales staff was imploding, a big reason for the $36 million loss despite record earnings…

Give the girl a break. Yelp is a nightmare to work for, the CEO is a complete idiot and frankly in my mind nearly in breach of his basic fiduciary duties as the CEO of a publicly traded company that has made some major whiffs and many shareholders are suffering as a result, and just because this young woman wants to take her stand in a city that matters, where dreams happen and exciting, extraordinary lives are led, should be applauded. Cut the Millennial shit — that’s just older Gen X peeps (I am 40, and in that category, but somehow missed out on the negative mindset and multiple cognitive biases on full display here) being Haters.

Keep grinding talia jane, and cheers for the courage to call out one of the worst CEOs in tech, operating one of the worst companies in tech. Numbers never lie…this company is a disaster, and has admitted mistakes in how they managed and compensated their staff (in all fairness, Stoppelman did say on the earnings call twice that the mistakes that were made are being remedied…based on this guy’s track record, I can say I am highly suspect!).